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Global Market Guide: Auckland, New Zealand

Auckland is a beautiful city situated on the northern island of New Zealand in proximity to natural wonders including volcanoes and the Haurkai Gulf. After housing sales hit their lowest level in seven years in August, the area saw an increase in sales at the end of 2017. The market has begun to stabilize but it is uncertain if there will be another substantial increase in 2018. In this month’s Global Market Guide, we take an inside look at the current state of the market and the future of luxury real estate in Auckland, New Zealand.

MARKET TRANSACTIONS

Sellers that reach out to a real estate agency to sell their property enter into either an exclusive (“sole”) or general (“multiple”) agency agreement. An exclusive agreement lasts 90 days unless the agreement stipulates otherwise. The majority of sellers see benefit in selecting an exclusive agency agreement, and 80% of the listings we currently have are on an exclusive basis.

It is very common for the seller to decide during the first consultation with an agency, to sell the property by auction, tender or through a negotiated price. More than 50% of properties in New Zealand are sold by auction. Often, the seller's agent will deal directly with potential buyers or their legal advisor. Although most agencies do not engage agents who work for a fee for the buyer, we do help buyers to identify potential properties and negotiate with vendors on the buyer's behalf.

CURRENT HOUSING MARKET

After an unprecedented nine years of year-on-year increases, in 2017 prices in the Auckland market became more stable. Prices continued to rise modestly, but the rate of price increases slowed significantly.

Although prices remain firm, the number of sales in 2017 compared to the two previous years, decreased by one-third. Turnover in the market has declined, however, the level of decline is not as large in the luxury market. Luxury buyers have greater resources and flexibility than traditional buyers and high-end property continues to be in strong demand.

ATTRACTING LUXURY BUYERS

Luxury buyers coming to Auckland are attracted to the area because of the quality of life, temperate climate and its connectivity to the world. With a population of less than 5 million, Westminster style government and a legal system founded on British law, New Zealand offers residents judicial rights, personal protection and freedoms, sound academic standards and freedom from corruption. New Zealand is also one of several areas that does not have a capital gains tax, which adds to its appeal to foreign buyers.

The properties most appealing to luxury buyers are coastal locations, rural areas with great views and luxury apartments in the city. Rural and coastal retreats close to Auckland are often rated highly among the top locations to live in the world.

NEW DEVELOPMENTS

House construction in Auckland is at its highest in decades and the building boom is forecast to carry on for at least the next 10 years. This era of intense construction has been caused by a recent rapid increase in population coming from a combination of expats returning home, internal migration to Auckland from other centers and international immigration.

This population growth coincided with years of under investment in new home building. It is estimated that Auckland alone needs an excess of 40,000 new homes to meet current demand and at current building rates this will take between three and four years to fulfill.

LUXURY BUYER PROFILE

Currently about 3% to 4% of buyers are non-New Zealand residents. Anecdotal information suggests the most common nationality of non-resident buyers are British, North American, Australian, Chinese and South Korean. All these nationalities are represented in the luxury home market, as are expat New Zealanders returning home after successful careers in Britain, North America and the EU.

CURRENT POLITICAL CLIMATE

In September 2017 there was a change of government and the new officials have promised to bring significant change to the housing market. This includes preventing non-New Zealand and Australian residents from purchasing existing homes in New Zealand, building more affordable homes and changing tax provisions around housing that favors investors.

Legislation restricting non-New Zealand and Australian residents from buying residential property has been tabled in New Zealand's Parliament and is likely to be passed into law in the first quarter of 2018. Specifics of the legislation have yet to be finally resolved, but for most non-New Zealand and Australian residents the opportunity to obtain a property in New Zealand is likely to be restricted to building or buying a new house

It is also undertaking a comprehensive review of taxation but has committed not to impose any major change in taxation policy recommended until after the September 2020 election. One of the commitments is that owner occupier homes will not attract a capital gains tax. The opposition is against the introduction of capital gains tax.

For a number of years regulators and the trading banks have been attempting to rein in price increases and there were progressively a number of initiatives undertaken by the Reserve Bank and the trading banks (the main source of mortgage finance) to curb price increases. Combined with growing consumer community concern about the prices being paid, these measures eventually achieved the goal of cooling the market.

Specifics of the legislation are still to be finally resolved, but for most non-New Zealand and Australian residents the opportunity to obtain a property in New Zealand is likely to be restricted to building or buying a new house.

GROWTH IN THE MARKET

The current market is best described as being in a stable trading environment. While sales numbers are down, prices have stayed firm long enough to suggest that prices are unlikely to decline. We expect that prices will remain flat in 2018, with sales numbers increasing within the year.

Currently, while the number of homes on the market is at the highest level it has been for a number of years, for a market of its size there are only a modest number of homes for sale. A significant amount of land is being made available for residential housing and this is likely to present opportunities for non-New Zealand and Australian residents to obtain a house in New Zealand (through building or buying a new property) while meeting future restrictions.

Although turnover in the market has been low, prices have remained stable for the beginning of 2018 in Auckland. Expats and foreign buyers from Great Britain, South Korea and other countries continue to migrate into the area due to its lack of a capital gains tax and excellent quality of life. The market has seen some challenges, however Auckland is still a coveted location and is ranked highly on several lists including Travel + Leisure and US News & World Report as one of the top cities to live in the world.

Special thanks to our member Barfoot & Thompson Ltd. for providing their insights about the luxury market in Auckland, New Zealand.